DO SOARING PRICE AND MOUNTING DEMAND IN INDIAN GOLD MARKET SPEAK OF A PARADOX?

A REPORT

Carried out by

GROUP 3

UNDER THE GUIDANCE OF

PROF. SAMIK SHOME

GROUP MEMBERS--

ABHISHEK JAISWAL ANIRBAN BHATTACHARYYA KARTHIK BOLLINENI PAVAN KUMAR SHREYA SHUKLA VAISHNAVI

CONCEPT OF DEMAND: QUANTITY DEMANDED: The amount of goods/services that an individual is willing and able to purchase at alternative prices for a given period of time other things remaining constant is called quantity demanded. DEMAND FOR GOLD IN INDIA: In the given case, it is mentioned that Indias share alone for gold comes to around 25% from the total demand. Around 75% of world demand for the gold is jewellery based and the rest 25% is investment based. There is a mismatch between demand for gold and supply of gold. Indias gold demand is significantly price elastic, in the short run as well as in the long run. Relative price of the gold has inverse relationship with gold demand. At the same time, gold demand is significantly responsive to income, wealth, risk free real interest rate, global supply conditions, personal income taxes and government policies. Indian gold demand is supported by cultural and religious traditions which are not directly linked with to global economic trends The concept of demand for gold in India can be broadly classified under two categories: 1. Price determinants 2. Non- price determinants

PRICE DETERMINANTS

In 2007, price registered arise and surged above $800 per oz. Mark and demand for gold jewellery decreased. This clearly reflects the law of demand.

PRICE

DD

DD QD

However, back in 2005, as the gold prices went up, demand also went up. This was concluded by the analyst to be an inverted demand curve for gold in India. The higher the gold price is rise in rupees terms, the stronger became the convictions of the Indians that the gold is the best means of preserving and enhancing ones wealth.

PRICE

DD

QD

INVERTED DEMAND

NON-PRICE DETERMINANTS:

1.

Income of the customer

2. Price of the related goods. 3. Consumers taste and preference. 4. Population. 5. Expected future prices of the good. In October 2008, demand for gold increased. Due to the festivity of diwali, falling gold prices was no more a factor for increase in demand but because of the festivity of diwali where, gold ornaments are purchased without taking price situation into account.
IT BOOM, INCREASE IN INCOME,

Womens economic independe nce

DD

DD QD

In 1992, economic reforms like liberalization, privatization and globalization were introduced in the country. This lead to more employment and income and more demand. This can be related to income-elasticity of demand concept also, where in a proportionate change in quantity demanded upon proportionate change in income decides the type of income elasticity demand.

Between 2003 and 2005, there was an income acceleration growth. The IT sector boomed there by resulting in increase in income. Womens economic independence also increased. In 2006, world gold council conducted a survey which concluded that due to an increase in economic independence of women in developing countries gave birth to gold as a more relevant and desirable product.
INCOME OF CONSUME A1 RS A

B1

QUANTITY DEMANDE D

This income growth in the above various years resulted in a shift in the demand curve. In 2008, US faced great recession, thus therere was a huge fall in the quantity demand for gold jewellery. But investors, opted for investments in gold.

PRICE DD

PRICE

DD

QD FOR INVESTMENT IN GOLD

QD FOR GOLD JEWELLERY

PRICE OF SUBSTITUTE GOODS In 2009, price of platinum decreased from Rs 35,000 per 10 gram to Rs 22,000. This reflects the substitute goods concept where in a fall in the price of substitute goods results in a decrease in the demand for that good. A similar situation was faced in February 2009 when a fall in the price of platinum resulted in an increase in its demand and a fall in the demand for gold.

PRICE OF PLATINUM (SUBSTITUT E GOODS)

DD

QD DEMANDED FOR GOLD

CONCLUSION: This particular case shows various fluctuations in the quantity demanded of gold affected by various factors such as price, income of the consumers, price of the related goods, consumers taste and preferences etc. various years proved ultimate

paradox of price increase resulting in an increase in demand for gold but in 2008, the world-wide recession proved an non-paradox in the case of gold jewellery demand which started falling due to falling income levels.